The Budget Debate: Core Principles and Common Sense

October 27, 2013

Robert Borosage

Congress is now lurching back towards another self-inflicted budget crisis. The new deadline is a budget deal by mid-January to avoid a government shutdown and lifting the debt ceiling by February to avoid default.

Senate Minority leader Mitch McConnell sensibly promises there will not be another government shutdown (but that assumes that Republican House Speaker John Boehner can put a leash and muzzle on his rabid Tea Party attack dogs. No guarantees there).

Both parties agree that talk about a “grand bargain” is off the table, “happy talk” as Democratic Senate leader Harry Reid scorns it. Both sides agree that they are looking for a “small deal” that will reduce the harm done by the mindless, across-the board sequester cuts, substituting longer-term deficit reduction for the short-term slash and burn cuts.

That’s where the agreement ends, and where the rhetorical fog thickens, and common sense gets lost. Here’s a brief guide to the coming debate

The Republican Core Principle: No More Taxes for Big Corporations or the Rich

House Republican Budget Chair Paul Ryan says “If we focused on doing some big grand bargain … then I don’t think we’ll be successful because we’ll focus on our differences. Each party will demand that the other compromises a core principle and then we’ll get nothing done,” (emphasis added)

Republicans want more deficit reduction, but that isn’t their “core principle.’ They want to relieve the military of disruptive sequester cuts, but that isn’t core either.

Republicans have one core principle: no new taxes on the rich and the corporations. Raising taxes is off the table.

Think about that. Our tax code still allows multi-millionaires like Mitt Romney to pay a lower tax rate than their secretaries. It sustains the obscene tax dodge for hedge fund billionaires. It allows companies like General Electric to stash millions in profits in tax havens abroad and pay literally nothing in taxes.

But Republicans stand tall on the “core principle” that the 1% and the multinationals should pay nothing more in taxes. They claim to favor “comprehensive tax reform,” but only if it is “revenue neutral,” that is, does not raise a dime to help the country address its challenges.

Inequality is at record extremes. The top 1% have captured 95% of the rewards of growth coming out of the financial collapse. Corporations are stashing nearly $1 trillion in cash abroad to avoid taxes. They get tax breaks for moving jobs or reporting profits abroad. Close those loopholes, tax their profits at the same rate wherever they report them, and we can raise hundreds of billions that can be used to make investments vital to our future – in rebuilding our decrepit infrastructure or educating our children – and help put people to work.

But no, Republicans will go to the wall for the 1% and the multinationals.

Republican budget chair Paul Ryan argues that the sequester cuts are wrong-headed. He says that they should be replaced with “smarter” spending cuts, which he describes as “longer-term savings on expensive federal benefits programs.”

That means cuts in Social Security, Medicare and Medicaid, food stamps, Pell grants, school lunches and the like. Ryan’s budget – supported by every Republican in the House – repeals health care reform, and cuts Medicaid and Medicare by more than $2.5 trillion over 10 years, leaving about 40-50 million people without health protection.

The Republican budget would end Medicare as we know it, turning it into a voucher program with a benefit that doesn’t keep up with rising medical costs. It slashes $800 billion from Pell grants, food stamps, SSI support for the aged and disabled, school lunches, the Earned Income Tax Credit and Temporary Assistance for Needy Families – not surprisingly refusing to specify who bears the pain.

Most Democrats fiercely oppose these cruel cuts, but many agree that cutting Social Security and Medicare are “smarter cuts.” As President Obama put it, our “challenges are not short-term deficits; it’s the long term obligations around things like Medicare and Social Security.” Obama put into his budget a proposal to cut Social Security benefits over time – by reducing the inflation adjustment, the so-called “chained CPI”adjustment.

Rep. Chris Van Hollen, Democratic leader Nancy Pelosi’s point person in the budget negotiations, says that Democrats won’t accept “significant cuts in social programs without increasing revenues by eliminating some tax breaks.” That means, they will accept “significant cuts” if Republicans accept shutting down some tax breaks.

More Austerity Is Coming

The entire discussion on the budget is focused on how much, what and how fast to cut. Republicans want to “lock in” the cuts already built into the budget, but are willing to trade immediate sequester cuts on the military for longer terms cuts in shared security programs.

Democrats say they want some spending on infrastructure and education to help create jobs. But they have already conceded the need for more deficit reduction. Instead of calling for simple repeal of the sequester cuts, Democrats want to “pay for” ending them by a combination of more tax revenues and cuts in shared security.

The two parties disagree about how much to cut and what to cut. But they agree on continued austerity

Lost in the Fog: Common Sense

The problem with these “core principles” and stated postures is that neither party is making much sense.

On taxes, Republicans offend. The fact is that the rich and the corporations pay too little, not too much in taxes. A goodly portion of our deficits comes from that fact that the rich and corporations decided not to pay their fair share of taxes. We enjoyed our greatest growth and build the broad middle class in the twenty-five years after World War II when the top tax rate was at 70-90% and corporations contributed over three times as much as they do now as a percentage of GDP

The fact is that we need more, not less, public investment. We are starving areas vital to our future. Even the Chamber of Commerce agrees we should be spending far more on rebuilding our decrepit infrastructure. We aren’t providing the basics in educating the next generation, from universal pre-school to affordable college. Our investment in science and research is declining when it should be expanding to help us capture a lead in the emerging green industrial revolution. We leave more than one in five children to be raised in poverty, a scandal that shocks other industrial nations. Our short-changed regulatory agencies expose us to costly hazards in our air, our water, our workplaces, and our finances.

Cuts to shared security are dumb, not smart. Social Security benefits are too low, not too high. The poverty rate among the elderly is increasing. Defined pensions are a thing of the past. Individual retirement accounts are a failed experiment, with the average savings of those near retirement at $100,000. We should be raising Social Security benefits, not lowering them.

Medicare covers too little, not too much. The typical couple enrolling in Medicare at 65 will pay an average of $220,000 in out of pocket medical costs – premiums, co-pays, and deductions – -by the time they die. Two thirds will need long-term care, costing another $50,000 on average. We shouldn’t cut Medicare’s protections. We should reform our broken health care system – and that requires taking on not the vulnerable, but the powerful entrenched corporate interests – -the drug companies, the insurance companies, the hospital complexes – that make our health care cost about twice as much per capita as that of other industrial countries.

The right-now best deficit reduction is not more cuts in spending but investment to put people back to work. We can’t cut our way out of mass unemployment and stagnant wages. We should be employing people to rebuild America, educate and care for the young. We can easily afford this with revenues from taxes that will help, not hurt, our economy – including a financial speculation tax to curb Wall Street’s casino, an end to deferred taxes on profits earned or reported abroad, a crack down on tax dodges and tax havens, fair taxes on the very wealthy.

So Washington is headed into another crisis that will, eventually, end in another deal. And given the framework of the discussion, that deal will impede our faltering recovery, and postpone yet again the fundamental reforms we need to make this economy work for working people once more.

How do Democrats respond to Donald Trump? With his first appointments, Trump has doubled down on the extremes. Democrats might learn from the 1980s, when they won many battles against Reagan, but lost the war.

In the wake of Trump’s victory, the traditional rituals were observed. Hillary Clinton gave a graceful concession speech; President Obama and Trump called for Americans to come together. The only true response was in the streets.

About Robert Borosage

Robert L. Borosage is the founder and president of the Institute for America’s Future and co-director of its sister organization, the Campaign for America’s Future. The organizations were launched by 100 prominent Americans to develop the policies, message and issue campaigns to help forge an enduring majority for progressive change in America.
Mr. Borosage writes widely on political, economic and national security issues. He is a Contributing Editor at The Nation magazine, and a regular blogger at The Huffington Post. His articles have appeared in The American Prospect, The Washington Post,Tthe New York Times and the Philadelphia Inquirer. He edits the Campaign’s Making Sense issues guides, and is co-editor of Taking Back America (with Katrina Vanden Heuvel) and The Next Agenda (with Roger Hickey).